Georgia tries to maximise its pipeline options

Apr 07, 1999 02:00 AM

by Jennifer DeLay

U.S., Azeri and Turkish efforts to secure support for the Baku-Ceyhan pipeline have been an uphill battle, and it
appears that the road to victory just got a little steeper.The Georgian government last week dropped a big hint that
it is not 100% committed to the project.
Instead, Tbilisi appears keen to make maximum use of its potential as a transit country by playing up another
suggested oil export route: Baku-Supsa. Georgian Foreign Minister Irakli Menagarishvili took this message to Ukraine,
saying that the first tanker load of Azeri oil to leave Supsa would go to Ukraine.
The tanker would leave Supsa on April 17, following the opening of the new oil terminal on the Black Sea coast, and
arrive in Odessa two to three days later, he said. The Georgian minister also noted that Ukrainian President Leonid
Kuchma is expected to attend the opening ceremonies for the Supsa terminal on April 16 and 17 as well as an event
marking the launch of regular ferry service between Poti,just north of Supsa, and Odessa.Menagarishvili hinted that
Tbilisi viewed Kyiv as a partner in the effort to export Caspian oil to Europe. He said it was "symbolic" that the
first load of oil to leave Supsa would go to Ukraine. The two countries are already co-operating on a number of other
fronts. They have in recent years signed several packages of bilateral agreements providing for wide-ranging
co-operation on military, economic and technical matters, and both are members of the loose alliance known as GUAM
(Georgia-Ukraine-Azerbaijan-Moldova).
Both Kyiv and Tbilisi are looking to Caspian oil as a means of securing their independence. Georgia hopes to make
itself into a major thoroughfare for Caspian oil transits. One relatively small export pipeline -- the Baku-Supsa
early oil line -- has already been built across its territory by the Azerbaijan International Operating Company
(AIOC), and the AIOC's planned main pipeline is also likely to cross Georgia. Two of the three main export pipeline
(MEP) routes under consideration -- Baku-Supsa and Baku-Ceyhan -- pass through the country.

Ukraine, meanwhile, hopes both to buy and to transport Caspian oil. It views Azerbaijan as a good replacement for
Russia, currently Ukraine's main supplier of oil. Kyiv is also working on plans to construct new pipeline and
terminal facilities for Caspian oil transits. The Odessa oil terminal is being expanded so that it can take on at
least 12 million metric tons of crude per year, and a new pipeline is from Odessa to Brody. This pipeline would allow
Caspian oil to flow from Ukraine's Black Sea coast into the Druzhba pipeline, built to transport Soviet oil to
Europe.
Though Tbilisi has said it would back the Baku-Ceyhan transport option for Caspian oil favoured by the Turkish and
Azeri governments, it has never quite given up on Baku-Supsa. Georgian officials said last year that the Baku-Ceyhan
pipeline could be built in two stages -- Baku-Supsa and Baku-Ceyhan. The suggestion was all but ignored by the
Turkish government, which is intent on seeing the pipeline turn south in Georgia at Zestafoni, a town east of
Kutaisi, rather than at Supsa. However, Georgian International Oil Corporation (GIOC) President Giorgi Chanturia
claimed last month that the AIOC was discussing a Baku-Supsa-Ceyhan route with Ankara.
Georgia's continued interest in Baku-Supsa was even more evident during Menagarishvili's recent visit to Ukraine.
Some Ukrainian television reports even quoted the Georgian foreign minister as saying that the route proposed by Kyiv
was the most realistic option for Caspian oil transports.
Menagarishvili was also quoted by other sources as saying that the new Baku-Supsa pipeline and Supsa terminal would
be able to send 12-15 million metric tons of Azeri oil per year to Ukraine. Kyiv will be able to import as much oil
as it needs with Georgia's help, he said.
Georgia's desire to play more than one side in the pipeline game is understandable. The country is small and poor,
and it does not possess oil andgas deposits to rival those of neighbouring Azerbaijan. Letting oil cross Georgian
territory on its way to more than one customer could prove very lucrative. But it may be premature for Tbilisi to
place its hopes in Kyiv.
Ukraine is heavily indebted to its main gas suppliers in Turkmenistan and Russia, and there is little reason to
expect that Georgia and Azerbaijan might fare any better. Indeed, Kyiv announced last week that it would have to stop
importing Turkmen gas because it could not afford to pay Ashgabat. (Ukraine went without Central Asian gas for almost
two years until Russia's Gazprom and the Turkmen government sorted out their differences earlier this year.) Even if
Ukraine managed to earn a bit of money by letting Caspian oil cross its territory, it would have to spend the
proceeds to buy the oil needed to heat homes and keep factories running.

Moreover, despite Menagarishvili's optimistic words, Georgia is in no position to send Ukraine 12-15 million metric
tons of Caspian oil per year atthis point. The AIOC built the Baku-Supsa pipeline as an early oil conduit capable of
carrying only about 5 million metric tons of oil per year. And even if the pipeline could carry more, Kyiv would not
be able to take delivery. Work to expand terminal facilities at Odessa (as well as work on the Odessa-Brody pipeline)
is not expected to be complete for another two years.It is not clear exactly what Georgia hopes to gain by enlisting
Ukraine as an advocate of the Baku-Supsa pipeline. Georgia stands to benefit no matter whether the AIOC chooses
Baku-Supsa or Baku-Ceyhan, and the members of the consortium -- most of them international majors -- have no need to
hunt around in cash-strapped Ukraine for customers. Before going any further with the push for Baku-Supsa, Tbilisi
should consider whether the risk of alienating its neighbours and allies that support the Baku-Ceyhan option is worth
the potential rewards of co-operation with Kyiv.

The International Affairs Institute (IAI) and OCP Policy Center recently launched a new book: The Future of Natural Gas. Markets and Geopolitics.

The book is an in-depth analysis of some of the fastest moving gas markets, attempting to define the trends of a resource that will have a decisive role in shaping the global economy and modelling the geopolitical dynamics in the next decades.

Some of the top scholars in the energy sector have contributed to this volume such as Gonzalo Escribano, Director Energy and Climate Change Programme, Elcano Royal Institute, Madrid, Coby van der Linde, Director Clingendael International Energy Programme, The Hague and Houda Ben Jannet Allal, General Director Observatoire Méditerranéen de l’Energie (OME), Paris.

For only €32.50 you have your own copy of The Future of Natural Gas. Markets and Geopolitics. Click here to order now!